What Costs Are Involved With Buying A Business in Sydney?

Don’t you wish buying a business could be straightforward? Well, some aspects of it are, and sometimes finding a good business and negotiating the terms can be smooth. But do you know all the hidden costs of buying a business? This is one aspect that can hit you when you least expect it, but we’re here to help you know what hidden costs you need to know about when buying a business in Sydney.

 

1. Goods and Services Tax (GST)

You might have to pay GST when you buy a business; however, it may not be applicable if the business sale is sold as a ‘going concern’ (when the business includes all the necessities for continued operation) and is outlined as such in the contract of sale. When the sale of the business does not meet the conditions for a ‘going concern’, or the transfer is wrongly assessed, then you may be liable to pay GST on top of the actual purchase price. In order for the business to be deemed a ‘going concern’, the following will need to be included in the contract of sale:

• The premises where the operations occur

• The seller will continue to trade as normal until effective control passes to the buyer

• The goodwill of the business

• All the essential assets

 

2. Transfer/Stamp duty

In certain circumstances, when buying a business, you will be liable for paying transfer duty, also known as stamp duty, in Sydney. This will be the case if the sale of the business includes the transfer of property, leases, and certain assets and liabilities. It’s calculated as a percentage of the total price of business assets; therefore, all assets will need to be stipulated in the contract of sale.

 

3. Stocktake

Regardless of the industry, most businesses will continue operating as usual while the sale is being processed. This means that stock, inventory, and unbilled projects might not be fully known prior to the sale settlement. Usually, this is added to the settlement, and the value of such assets or unbilled work is included in the details that are used to calculate the sale price. However, this depends on the terms of the agreement between the seller and buyer.

 

4. Business broker fees

Another cost that people often forget to budget for their business sale is the broker fees. If you hire a business broker to help buy or sell a business, you must pay a broker fee to the individual or company you hire. In most cases, broker fees will be a percentage of the sale price. Depending on your agreement with them, they might get somewhere between 2% to 10% of the sale value. However, this is typically the case when they sell a business for you. Buying a business may require an upfront payment before beginning the process. Ultimately, if you’ve hired a business broker, factor in their fee when the sale goes through; if you have more questions about this, contact the Business brokers in Sydney for more information.

 

5. Employee entitlements

In the event of a business purchase, the purchaser of the business has the choice to take on the existing employees of the business or not. If they choose not to continue the contracts with the existing employees, then the onus is on the seller to terminate the contracts with the employees and pay them out any entitlements they are owed.

 

However, if the purchaser decides that they’d like to maintain the existing employees, the seller would need to terminate their contracts to allow for the new owner to write up new contracts and re-employ the workforce. In this case, the new employer would need to observe all the relevant entitlements of the employee's previous contract and include them in the new contract. This includes things like sick leave and carer’s leave days still owed to the employee.

 

6. Franchise fees

If you’re buying into a franchise, you can expect to take over the franchise fees. In addition, the business's seller must also get written permission to transfer the business to you. Before you buy into a franchise, be sure to check over the specifications and requirements set in the franchise agreement. For example, franchise agreements usually require owners to adhere to certain regulations regarding their stock, how their shops look, the marketing, and how their employees are treated and dealt with.

 

7. Assignment of lease/New lease

Finally, the business you are purchasing currently leases the property from someone else. In some cases, these lease agreements have clauses in them that make the lease void if there are any material changes to the business. This means that you may need to renew the lease and negotiate the terms of the new lease to continue using the same premises for your business.

 

Final Thoughts

A big part of buying a business is ensuring that you’re prepared for all the costs that come along with it. Unless you know what they are and you have the money ready to pay them, you can start on the back foot with your new business.